An overview of the effects of monetary policy in Botswana on GDP and inflation, from 1981 to the present day.
% annual growth rate:
Sources: M3 from Bank of Botswana and nominal GDP from IMF database, as at September 2023
The medium-term relationship between money and nominal GDP growth in Botswana, 1981-2022
Five-year moving averages of annual % changes, with 1983 being the start of the first five-year period
Comment on monetary trends in Botswana
Since independence in 1966, Botswana has been one of the most stable countries in sub-Saharan Africa. It has also transformed itself into one of the world's fastest developing economies, with diamond mining the most significant industry. Its banks are also among the best managed in the continent.
Botswana used the South African Rand as its currency until 1976, when it introduced the Pula. Botwana's Central Bank, the Bank of Botswana, had been established the previous year as part of the move towards monetary independence.
Broad money growth was very high until the last decade, as the graph above shows. Inflation was also a problem, although it has stayed below 10% for over a decade. As demand for diamonds in developed nations fell significantly in the Great Recession of 2007-8, Botsawna's economy suffered more than most other nations in sub-Saharan Africa. However, it has subsequently recovered and both broad money and GDP growth have remained at respectable levels for much of the last decade. The Bank of Botswana does not set inflation targets as such, although its monetary policy is determined by fluctuations in the Consumer Price Index.
Besides needing to diversify its economy in order to be come less dependent on mining, Botswana also suffers from one of the highest levels of HIV/AIDS in the world. The country suffered with a sharp drop in GDP during the coronavirus pandemic of 2020. Stimulatory measures saw broad money increase sharply in 2020. Inflation rose in 2021-2 but has since fallen back. Broad money growth has also slowed and the country’s economy has now reverted to moderate, stable growth.